FHA Looking For Input On Anti-Flipping Rule Waiver Conditions

Dennis Norman

Back in January I did a post about FHA’s decision to temporarily (until February 1, 2011 if not revoked earlier) waive their “anti-flipping” rule, thereby allowing homes to be resold with FHA-insured financing even if the sale took place within 90 days of the selling acquiring the property. There were, of course, conditions that had to be met for this waiver to apply.

Specifically, the conditions that must be met for this waiver to apply (as well as guidelines to the lenders on how to confirm compliance) are:

All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction. Some ways that the lender can ensure that there is no inappropriate collusion or agreement between parties, are to assess and determine the following:

1. The seller holds title to the property;
2. Limited liability companies, corporations, or trusts that are serving as sellers were established and are operated in accordance with applicable state and federal law;
3. No pattern of previous flipping activity exists for the subject property as evidenced by multiple title transfers within a 12 month time frame (chain of title information for the subject property can be found in the appraisal report);
4. The property was marketed openly and fairly, through a multiple listing service (MLS), auction, for sale by owner offering, or developer marketing (any sales contracts that refer to an ‘‘assignment of contract of sale,’’ which represents a special arrangement between seller and buyer may be a red flag).

In cases in which the sales of the property is greater than 20 percent above the seller’s acquisition cost, an FHA-approved mortgagee is eligible for the waiver only if, the mortgagee:

1. Justifies the increase in value by retaining in the loan file supporting documentation and/or a second appraisal, which verifies that the seller has completed sufficient legitimate renovation, repair, and rehabilitation work on the subject property to substantiate the increase in value or, in cases where no such work is performed, the appraiser provides appropriate explanation of the increase in property value since the prior title transfer; and
2. Orders a property inspection and provides the inspection report to the purchaser before closing. The mortgagee may charge the borrower for this inspection. The use of FHA-approved inspectors or 203(k) consultants is not required. The inspector must have no interest in the property or relationship with the seller, and must not receive compensation for the inspection for any party other than the mortgagee. Additionally, the inspector may not: compensate anyone for the referral of the inspection; receive any compensation for referring or recommending contractors to perform any repairs recommended by the inspection; or be involved with performing any repairs recommended by the inspection. At a minimum, the inspection must include:
   1. The property structure, including the foundation, floor, ceiling, walls and roof;
   2. The exterior, including siding, doors, windows, appurtenant structures such as decks and balconies, walkways and driveways.
   3. The roofing, plumbing systems, electrical systems, heating and air conditioning systems;
   4. All interiors; and
   5. All insulation and ventilation systems, as well as fireplaces and solid fuel-burning appliances.

Only forward mortgages are eligible for the waiver. Mortgages insured under HUD’s HECM program are ineligible for the waiver.

Now, HUD wants to hear from the industry, potential purchasers and other interested members of the public on their opinion of these conditions. So if you think they are too stringent, now’s your time to voice your opinion. You have until June 21st to get your comments in.

Information on where and how to submit your comment:

You can submit you comments by mail to:

Regulations Division,
Office of General Counsel
451 7th Street, SW.
Room 10276
Department of Housing and Urban Development
Washington, DC 20410–0500.

Or

Electronically through the Federal ERulemaking Portal (HUD
strongly encourages commenters to submit comments electronically)

ALL Communications must include the docket number, “FR–5397–N–01” as well as the title, “Federal Housing Administration (FHA)—Temporary Exemption From Compliance With FHA’s Regulation on Property Flipping.”

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